The price paid to purchase an option is called the

The price paid to purchase an option is called the

• A. Basis
• B. Premium
• C. Margin
• D. Strike price

Answer: (B)

The amount you pay to buy an option is called the premium. This upfront payment compensates the seller for taking on the risk and for the option’s time value (and any intrinsic value if the option is already in the money). The premium is paid regardless of whether you end up exercising the option. Other terms aren’t about the option price itself: basis is related to the cost basis or the relationship between price and the underlying asset; margin is the collateral you must post to cover potential losses; and the strike price is the fixed price at which you can exercise the option.

The amount you pay to buy an option is called the premium. This upfront payment compensates the seller for taking on the risk and for the option’s time value (and any intrinsic value if the option is already in the money). The premium is paid regardless of whether you end up exercising the option.

Other terms aren’t about the option price itself: basis is related to the cost basis or the relationship between price and the underlying asset; margin is the collateral you must post to cover potential losses; and the strike price is the fixed price at which you can exercise the option.